Device Drama Not Over Yet

Johnson & Johnson defends its bid for Guidant, while analysts again talk up the St. Jude option.

Guidant's shares closed down $1.10, or 1.6%, at $66.88, suggesting investors aren't ready to claim victory just yet. J&J was off 58 cents, or 1%, at $60.47, and Boston Scientific shares slipped 1 cent to $26.34.

J&J, Guidant and Boston Scientific, of Natick, Mass., compete in the coronary-stent market. Stents are devices that are used to hold open clogged arteries. The acquisition of Guidant would expand J&J's reach into the medical-devices arena, where its Cordis unit already operates.

Boston Scientific, meanwhile, says a merger with Guidant, whose series of product recalls led to J&J lowering its offer price, would "create the world's leading cardiovascular device company accelerating diversification and growth."

Even if Boston Scientific and Guidant end up joining forces, that doesn't necessarily spell doom for J&J. That's because there's heart-device maker St. Jude ( STJ), the No. 3 player in cardiac-rhythm management behind Medtronic ( MDT) and Guidant. St. Jude's name has in the past come up as a takeover possibility, and this time's no different.

Consolidating Options

Now that J&J's interest in heart devices is crystal clear, Minnesota's St. Jude could provide an option for gaining entry into the market for defibrillators and other instruments. St. Jude rose $1.05, or 2.1%, to $51.61 Tuesday after gaining nearly 5% in the previous session.

According to Brozak, J&J will look to make an acquisition in order to expand its offerings, and for St. Jude, he says, "at the right price, anything is possible." WBB doesn't have an investment banking relationship with Guidant, J&J, Boston Scientific or St. Jude.

Ben Andrew, an analyst at William Blair, says that at the very least, St. Jude is a strong candidate for a buyer, and soon.

"We view St. Jude as the cleanest entry point for an acquirer looking to gain access to the rapidly growing cardiac-rhythm management market and would not be surprised by a takeout in the coming year," he wrote in a research note.